Skip to main content

Money Markets Instruments

Money Market Securities in India
The money market includes instruments for raising and investing funds for periods ranging from one day up to one year. Money market securities consist of repos/reverse repos, CBLOs ( collateralized borrowing and lending obligations),certificates of deposits, treasury bills, and commercial paper. All these securities are issued at a discount and redeemed at par, and are zero coupon in structure.  Money markets also include inter-bank call markets that are overnight lending transactions between banks, inter- bank terms markets that  are long term deposits between banks, and interoperate deposits, which are short term lending between companies. These transactions do not involve creation of a debt security and are therefore not included here. The Participants in the money market include banks, primary dealers, financial institutions, mutual funds, provident and pension funds, companies and the government. The purpose of the money market is to enable institutions and companies  to meet short term funding needs by borrowing and lending from each other.



Repos / Reverse Repo
A repo is a transaction in which one participant borrows money at a predetermined rate against the collateral of eligible security for a specified period of time. A reverse repo is a lending transaction; a repo in the books of the borrower is a reverse repo in the books of the lender. Eligible Collateral for repos and reverse repo are central and state government securities and select corporate bonds.

Collateralized Borrowing and Lending Obligation (CBLO)
A Collateralized Borrowing and Lending Obligation (CBLO) is an instrument used to lend and borrow for short periods, typically one to three days. The debt is fully secured against the collateral of government securities. CBLO is a standardized and traded repo.

Certificates of Deposits
Certificates of Deposits (CDs) are short term tradable deposits issued by banks to raise funds. CDs are different from regular bank deposits because they involve creation of securities. This makes the CDs transferrable before maturity. However , actual  trading in CDs is extremely limited with most investors preferring to hold then to maturity.

Treasury Bills
The central government borrows extensively in the money market for its daily operations through the issue of short term debt securities called Treasury Bills( T-bills). T-bills are issued for maturieties of 91 days ,182 days and 364 days. They are issued through an auction process managed by the RBI and listed soon after issue. Banks , mutual funds, insurance companies, provident funds, primary dealers and FIs bid in these auctions.

Commercial Paper

Companies and institutions raise short –term funds in the money market through the issue of commercial paper (CP).Though CPs are required to have a credit rating, they are unsecured corporate loans with a limited secondary market. They can be issued for various maturities of up to 364 days, but the 90 day CP is the most popular. 
Labels:

Comments

Post a Comment

Popular posts from this blog

RISK in Investments

Investment decisions are a trade off between Risk and Return. Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome. Most investors are concerned about the actual outcome being less than the expected outcome. The wider the range of possible outcomes,the greater the risk. SOURCES OF RISK The three major sources of risk are: Business Risk Interest Rate Risk Market Risk   Business Risk As a holder of corporate securities (equity shares and debentures) you are exposed to risk of poor business performance. This may be caused by a variety of factors like heightened competition, emergence of new technologies, development of substitute products , shifts in consumer preferences, inadequate supply of essential inputs,changes in governmental policies and so on. The principal reason might be inept and incompetent management. Interest Rate Risk The changes in interest rate have a bearing  on the welfare of investors. As th
Post a Comment
Read more

A note on Motivation

Motivation Theories Motivation- those factors that cause ,channel, and sustain people’s behavior. Motivation is not always easy to discern. Most successful managers ,however, have learned by experience that people are generally very responsive to praise and encouragement-expressed not only in words but also in actions and need to feel successful in their work to give their best effort to the organization. Different View points on Motivation The Traditional Model The traditional model of motivation is associated with Fredrick Taylor and scientific management which held that an important aspect of the manager’s job was to make sure that workers perform repetitive  tasks in the most efficient way. The Human Relations Model In the human relations model, workers were expected to accept management’s authority because supervisors treated them with consideration and were attentive to their needs. The intent of managers ,however remained the same- to have the workers accept
Post a Comment
Read more

Certified Bitcoin Professional Exam

Studying for the CBP exam is easy. The 33 topics are covered extensively online making it easy to learn the knowledge required for certification. A  CBP Study Guide  is available to assist your review. The Common Body of Knowledge for the Certified Bitcoin Professional certification is defined as follows: History of Money and Ledger-based Economics Centralized Ledgers Functions of Currency Distributed Consensus History of Bitcoin Price Derivation Basic Cryptography Terms and Definitions Hash Functions Symmetric and Asymmetric Encryption Digital Signatures Bitcoin Basics Bitcoin Community Bitcoin Addresses and Keys Bitcoin Transactions Bitcoin Blockchain Ledger bitcoin the Unit Bitcoin the Network BIPs Buying and Selling bitcoin Blockchain Explorers UTXOs Mining Purpose and Function Algorithm Mining Pools Mining Hardware Security and Centralization Wallets, Clients and Key Management Wallet Types Bitcoin Clients Deterministic Wallets (AKA B
2 comments
Read more